Product Liability Insurance: Cost & Coverage
Product liability insurance covers a business’ potential financial loss arising out of a claim that its product caused damage or harmed a consumer. The costs handled within the policy limits by product liability include the business’ legal fees, such as lawyer bills, court awards, and even the injured party’s medical bills if the business is found liable. Product liability insurance costs vary, but in general, premiums can range from $700 to $3,000 annually for a small family clothing store.
Product liability insurance can be purchased as a standalone policy, but many providers often include it with general liability. As a digital marketplace, Simply Business is a great way to find and compare multiple options for general liability with product liability included. In 10 minutes or less, you can compare multiple quotes and purchase a policy online without needing to speak with anyone.
Product Liability Insurance Costs
Product liability costs vary largely based on the size of the company and industry. The following quotes are for general liability policies that include product liability in its coverage.
Type of Business | Estimated Annual General Liability With Product Liability Included |
|---|---|
Hobby, Toy & Game Stores | $700 to $2,000 with limits of $1 million per occurrence and $2 million aggregate |
Family Clothing Store | $700 to $3,000 with limits of $1 million per occurrence and $2 million aggregate |
Restaurant | $850 to $3,500 with limits of $1 million per occurrence and $2 million aggregate |
Grocery Stores | $1,500 to $4,000 with limits of $1 million per occurrence and $2 million aggregate |
Product Liability Insurance Costs: Factors
A number of factors influence the cost of product liability insurance. Some are the type of your product, how it’s marketed, its safety features, and the size of your distribution. Items like fireworks and firearms will have a higher risk factor than fuzzy slippers and yoga mats.
Other factors that determine product liability insurance cost include:
- Industry: Not only are some products riskier than others, but certain industries face high standards and more lawsuits than others, so they often pay higher product liability premiums.
- Location: Carriers price insurance based on state insurance regulations and typical loss exposure.
- Revenue: Annual revenue defines the overall liability lawsuit exposure a company faces and impacts the amounts awarded by courts.
- Claim history: A company or product with a history of claims generally indicates a greater risk for the insurer.
- Coverage limits: Policies start with limits as low as $100,000 but can exceed tens of millions of dollars for protection; higher coverage means more exposure for the insurer, so premiums are higher.
The Cost of Not Getting Product Liability Insurance
While the cost of insurance is high, especially for businesses in riskier industries, claims and lawsuits related to products are even higher. The most recent data from the Insurance Information Institute shows the median product liability award is $3.9 million.
Product Liability Coverage Details
Many providers include product liability with general liability, but product liability can be purchased as a standalone policy. Any business owner considering a standalone product liability policy should get familiar with some of the details below to ensure their risks are appropriately covered.
What’s Commonly Not Covered
Product liability has several common exclusions that create reasons for carriers to deny claims. Five common exclusions specific to product liability insurance include:
- Quality control exclusion: Product liability insurance carriers require that manufacturers and distributors maintain quality control standards to ensure products are safe for consumers.
- Reporting exclusion: Failure to report new manufacturing methods, products, materials, or ingredients can mean your policy doesn’t cover your product.
- Efficacy exclusion: Your insurer may deny a claim if your product fails to perform its main function.
- Material exclusions: Many carriers do not cover certain materials or ingredients; selling or manufacturing a product that contains a forbidden material or ingredient means your policy doesn’t cover it.
- Product recalls: Most product liability policies don’t cover costs associated with the withdrawal, inspection, repair, replacement, or loss of use of an insured’s product if it’s recalled.
Reach out to your carrier whenever you add products or change production methods, materials, or designs on current products. Doing so can save you a lot of headaches, should you be hit with a product liability lawsuit.
Claims-made vs Occurrence Product Liability Insurance
Product liability can be written on a claims-made or an occurrence basis. The main difference between the two is that a claims-made policy covers claims that both happen and are filed during the policy term, whereas an occurrence policy only requires the event to happen during the policy term:
- Claims-made require both the triggering event and the claim filing to take place while the policy is in force. However, most claims-made policies include prior acts coverage for triggering events that occur before the policy starts. Without this coverage, events that cause damage before you buy your policy would be denied, even if you only learn about them during the life of the policy.
- Occurrence policies pay for any covered claim—as long as the triggering event occurs during the life of the policy. This means if you no longer have an active policy with the carrier but a loss is brought to your attention that took place while the policy was active, you can still file a claim. As a result, occurrence policies tend to be more expensive than claims-made policies because the insurer has to pay claims even after the policy has ended.
Product Recall vs Product Liability Insurance
As mentioned above, recalls are usually excluded from product liability coverage and require product recall insurance. A product recall policy generally covers the business’ financial loss in a recall, such as:
- Reimbursement payments
- Shipping costs
- Product testing
- Customer notification
- Employee overtime
A company working in an industry where product recalls could affect millions of people, such as safety products, electronics, or food, should consider getting product recall coverage in addition to product liability insurance.
Vendor Coverage Rider for Product Liability
Some providers offer vendor coverage as an insurance endorsement to the manufacturer’s or distributor’s policy because anyone involved in the manufacturing and distribution process can be held liable for product claims. This endorsement extends coverage down the supply chain to retail sellers.
A retailer who wants to take advantage of this rider should request a certificate of insurance (COI) as proof that the other business owner has product liability insurance—and note that not all carriers offer a vendor coverage rider. It is important to remember that because this endorsement creates additional insureds, claims by any of them are included in the aggregate limit of the policy.
Who Needs Product Liability Insurance
Business owners are liable for injury, illness, and property damage caused by the products or services they bring to consumers. This means that all businesses should consider product liability insurance, regardless of the industry they operate in.
In most states, any business in the supply chain can be held responsible for the harm its goods or services cause. That means retailers, designers, wholesalers, manufacturers, and distributors can all be sued for:
- Design defects: When the initial design causes an entire product line to be inherently dangerous, like a top-heavy car that consistently flips over on turns
- Manufacturing flaws: When a flaw in production creates a defect in a product that then causes injury or damage; an example might be a swing set with a loose or weakened chain
- Defective instructions or warnings: When inadequate or unclear instructions cause an injury, such as a cleaning solution that emits chemical fumes and does not give directions to use in a ventilated area
Product liability insurance covers these lawsuits and completed business operations that occur off-premises. For example, if a carpenter finishes hanging kitchen cabinets that later fall and cause damage, product liability insurance typically pays for the repairs.
Product liability policies often require the insured to report any potential claim to the insurer within a certain time frame—or they risk having the claim denied. While a minor incident may not turn into a major lawsuit, reporting it ensures you’ve met your contractual obligation.
Frequently Asked Questions (FAQs)
If you work in an industry that produces any product, then you should consider product liability insurance. If you are involved in a supply chain, it is possible to be added as an additional insured to a policy by the seller. If you are a vendor selling goods at an event or craft show, then product liability insurance may be a required coverage by a venue.
No, they are not. Product liability insurance covers claims that your product caused harm or injury—and the coverage is limited to that type of specific claim. Meanwhile, recall insurance is a separate coverage that will help with the costs associated with recalling a product.
The cost varies greatly depending on the risk of your business. For example, a policy for a hobby store can cost anywhere from $700 to $2,000 annually. Meanwhile, a grocery store’s policy can run from $1,500 to $4,000 annually.
Product liability insurance is often included in a general liability insurance policy for certain industries needing the coverage. Meanwhile, some providers sell it as a standalone policy, so if your general liability doesn’t carry product liability, then you should consider purchasing it. The best thing to do is review your policy with your provider or agent to see if your current general liability carries product liability. If it does, determine if the limits are sufficient for your business.
Bottom Line
Product liability insurance is an essential policy for businesses manufacturing, distributing, or selling products. Product insurance protects against claims and lawsuits where judgments can be in the millions. You should get coverage to protect your business against the expense of defending claims if a product malfunctions or has a design flaw.
In just minutes, Simply Business can provide quotes from multiple top-rated providers. Compare quotes and find the right policy for your business today.
